Kinross Gold Corporation (KGC) Q3 2021 Earnings Report, Transcript and Summary

Hello and welcome to the Kinross Gold Corporation, Third Quarter 2021 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. I would now like to turn the call over to Mr. Chris Lichtenheldt, Vice President Investor Relations. please go ahead, Sir.

Thank you and good morning. With us today, we have Paul Rollinson, President and CEO. And from the Kinross senior leadership team, Andrea Freeborough, Paul Tomory, Geoff Gold. Before we begin, I would like to bring your attention to the fact we will be making forward-looking statements during this presentation. For a complete discussion of the risks, uncertainties, and assumptions, which may lead to actual results and performance being different from estimates contained in our forward-looking information, please refer to page 2 of this presentation, our news release dated November 10th, 2021. The MD&A for the period ended September 30th, 2021 and our most recently filed AIF, all of which are available on our website. I will now turn the call over to Paul.

Thanks, Chris and thank you all for joining us today. We are pleased with how our portfolio is positioned today and our outlook going into next year. Reflecting back on the 5 months since the fire at Tasiast, I'm pleased to report that the mill is back up and running, the expansion project remains on track, and we expect to have built high-grade stockpiles by year-end. Despite Tasiast having recovered, our market value is still significantly lower than it was before the fire. To the extent, a portion of this may be caused by lingering concerns around Tasiast. Today we hope to alleviate those concerns. The restart of Tasiast combined with the La Coipa project and strong performance from our broader portfolio puts us in an excellent position to grow production and free cash flow over the coming years. Turning to the third quarter, results were in line with our expectations, and I'm encouraged to see signs of a continued return to normal across our operations, including a return to the Toronto office. Before turning the call over to Andrea for a financial review, and Paul for some operating highlights, I'll discuss some additional detail on Tasiast, the results from our studies on the Udinsk and Lobo-Marte projects, and some highlights from the quarter. At Tasiast, thanks to the excellent work by our team, the mill repairs were completed at a cost lower than earlier estimates and we're on schedule to ramp up and reach throughput of 21,000 tons per day by the end of Q1 '22. Over the next few weeks, we will be focused on getting mill throughput back to levels comparable to the first half of the year. Moving onto our projects. Yesterday, we released study results for 2 of our key growth projects, which in both cases largely confirmed our previous views. The pre-feasibility study for Udinsk reaffirms this is a low-risk, high-return project extending our presence in Russia. We are now working on a feasibility study which we plan to complete next year after which we expect to make a formal construction decision. We continue to think -- we continue to expect that Udinsk will be the first mine on our Chulbatkan land package, and we are targeting first production in late 2025. Turning now to Lobo-Marte, the feasibility study reaffirms all of the project’s key parameters. Lobo-Marte continues to offer long-term growth optionality as our potential next mine in Chile after La Coipa. Moving now to third quarter results. Our operations tracked well against our expectations, notwithstanding the challenging environment as the world works to come out of the pandemic. We remain on plan to meet our 2021 guidance, and we are well-positioned to deliver our production and cash flow growth over the coming years. While our production growth and related cost efficiencies are expected to drive our cash flow higher, we are also facing inflationary pressures, which will offset some of this. Andrea will provide more detail on this in a few moments. On capital returns, last quarter, we announced our share buyback program with the intention of spending roughly $150 million over the following 12 months. I'm pleased to report that to-date, we have spent $50 million repurchasing our stock and are well on track with our plan. We continue to view our shares as extremely attractive and are pleased to be able to repurchase at these levels. Finally, I would like to provide an update on the progress we've made with respect to ESG. We established an ESG Executive Committee that will report to our Board on a quarterly basis, to further enhance our initiatives. In addition, we are working to develop a road map that will support our greenhouse gas reduction targets for 2030. We expect to complete this assessment and provide detail around our targets with our year-end results. I will now turn the call over to Andrea for a more detailed review of financial results.

Thanks, Paul. I will summarize our financial results from the quarter, provide some comments on inflation and how we expect it may impact our business, and then provide an update on our balance sheet. Production during the quarter was approximately 483,000 ounces with sales slightly lower at 478,000 ounces. A decrease in production from last quarter was expected and was mainly due to Tasiast being down as a result of repairs to the mill. Cost of sales of $870 per ounce in Q3 was up from the previous quarter due to lower production and increasing inflationary pressures. All-in sustaining costs of $1,225 per ounce was up compared to the previous quarter due to higher cost of sales and higher sustaining CapEx. The increase in both cost metrics was expected and we remain on track to meet our revised guidance for the year. Attributable operating margins remained strong in Q3 at 51%, driven largely by strong gold prices. However, as previously indicated, inflation is impacting our results. We're currently seeing inflation in the range of 3% to 5% in the second half of this year, which we incorporated into our revised cost guidance last quarter. Looking ahead, as the price of key inputs remains elevated, we expect inflationary pressure on our operating costs in the range of 5% to 7% going forward. Having said this, our per ounce cost metrics next year are still expected to benefit from higher production. Higher commodity prices combined with tightening labor markets, specifically in specialized contract labors such as engineering services and increased global demand for mining equipment are also expected to contribute to higher CapEx next year. We're going through our budgeting process now and we'll be in a position to provide more specific cost guidance with our annual results in February. Moving to our balance sheet, our cash position decreased slightly from the previous quarter as expected, and we finished the quarter with $586 million of cash. We generated free cash flow of $39 million during the quarter, which was a decrease from the previous quarter due largely to the absence of production at Tasiast, while still spending on mining and repair. Looking ahead to the next quarter, Q4 CapEx is expected to be the highest of the year, and we expect to be within our guidance range for the year. Also, during the fourth quarter, we expect to make a onetime payment of $50 million related to a normal course settlement of prior taxes. Our net debt at the end of the quarter was $860 million and our trailing 12-month net debt to EBITDA ratio increased slightly and it's just under 0.5 times. As Paul mentioned, to-date, we've spent approximately $50 million on share repurchases, $32 million of which was during the quarter. This puts us on track to return approximately $300 million through dividends and buyback for mid-2021 to mid-2022. Finally, we're well-positioned to further strengthen our balance sheet next year as our production and free cash flow ramp-up. I'll now turn the call over to Paul Tomory.

Thank you, Andrea. Today, rather than a detailed review of each operation, I want to discuss a few key highlights and will be happy to take questions. At Tasiast, as Paul mentioned, the mill is up and running. The neutron screen and other key items arrived on site as scheduled and were installed last month. The mill is periodically achieving pre-fire throughput rates as planned. And we are in the process of ramping up and expect to achieve these levels on a sustained basis with the goal of achieving full production rates, throughput rates in December. While the mid -- while the mill is being [fed we’re] (ph) ahead of schedule, we've elected to use lower grade ore during the ramp up period, so the initial production will be modest. Furthermore, during this initial period where we're replenishing inventory on carbon following its depletion in the weeks after the fire. All told we expect to produce approximately 15,000 ounces during the fourth quarter and most importantly, exit the year with throughput rates of around 18,000 tons per day. We are on track initially with the projector to hit 21,000 tons per day by the end of the first quarter. I'm also pleased to say that the middle repair costs of approximately $20 million dollars were considerably lower than our initial estimates. Mining activities has continued through the quarter and as Paul mentioned, by the end of the year, we expect to have built high grade stockpiles. Mining rates during the quarter are lower than initially anticipated, as a result of challenges in drilling and blasting. However, these issues are being addressed and we remain on track to achieve strong production Tasiast next year, in line with our technical report and our studies. The 24k project is also progressing as planned with completion expected in mid '23. Moving to Round Mountain, the optimization study, which includes Phase S, is on schedule and we expect it to be completed in the first half of next year. The Geotech work is advancing well and will provide the data needed to make conclusive decisions throughout the ultimate slow bangle, as well -- as any needed to step out some berms. And to-date the study is not presenting any significant surprises. In the quarter, we also completed the relocation of the waste pile from the top of the pit to further stabilize the wall. Moving to the results of the Udinsk PFS, this study confirms the projects expected stronger turns. The conclusion of the PFS and combination of more than 55,000 meters of infill and Geotech drilling has allowed us to convert approximately 3 million ounces from resources to reserves. Most of the study outcomes are in line with the assumption of the time of the acquisition with some improvements in recovery and production. Capex however, has increased by approximately a $150 million., broken down roughly it follows in thirds. First third, approximately from an inflation. Another third is from value-added decisions that have improved the NPV become with an added capital cost, for example, a finer crush for better recovery. And finally, a third from scope changes including earthworks in camp facilities, which were costlier than initially anticipated. As Paul mentioned, we also completed the FS on Lobo-Marte. The study confirmed the project's key parameters, pit optimization work, and infill drilling completed over the past few years resulted in increased global markets reserves by approximately 300,000 ounces. And to its resources by 600 thousand as compared to the PFS. The estimate for initial capital increased by approximately 8 % compared to previous study but mostly due to the reclassification of certain plant elements from sustaining to initial. As such, the NPV, is in the line. We completed the study with key environmental and community considerations as part of the project design, and continue to advance the EIA submission. Lobo-Marte will now enter a lengthy permitting phase, which we expect will take 3 years. Construction decision will not be made until after that with construction beginning no earlier than 2025. Mining at Lobo-Marte, will not begin until permitting has concluded and we've completed mining at La Coipa as the 2 sites currently plan to use the same water source. We continue to see further potential to extend La Coipa by bringing satellite deposits into the mine plan and we've made significant progress on them. Therefore, we may ultimately push out Lobo-Marte to accommodate more production at La Coipa, which would allow us to further leverage our capital investments in Chile and to extend our overall production profile in that country. And with that, I will turn it back to Paul.

Thanks, Paul. I will just wrap up by reiterating that production at Tasiast has resumed and our operations are in excellent shape going into next year. Our balance sheet is strong and we continue returning capital to shareholders through dividends and buybacks. And our production pipeline continues to grow as we advance our projects and position our Company for long-term success. With that Operator, I would now like to open up the call to questions.

At this time, I would like to remind everyone, [Operator Instructions] We'll pause in just a moment to compile the Q&A roster. Your first question comes from the line of Tyler Langton with JPMorgan.

Good morning. Thanks for taking my questions. Just to start for the Udinsk and Lobo-Marte studies, can you just provide some detail on the level of costs you are using for both CapEx and operating costs? Are you using more -- sort of current prices in those estimates or some sort of historical average or normalized range?

We're using current prices. So, in the case of capital estimates, they're based on submissions from contractors and equipment suppliers. In the case of Udinsk, those are clearly near or in time. As for our operating costs, we are using current costs. In other words, the inflationary impacts that have been seen over the last year have been incorporated into that.

Okay, Paul. So, if inflation is more temporary then we'll definitely see a reduction potentially in those items.

Well, I certainly hope you're right on that. But as I said, at Udinsk a full third of the capital cost increase was due to inflation. And so, if inflation goes -- abates and prices drop and yes, we could see that but I don't anticipate that.

Right. But I guess the same is -- then for operating costs too if sort of in place --

Absolutely.

Okay.

Yeah. Operating costs of -- Yeah that's right. You're correct.

Okay. Perfect. And then just at Tasiast, I know you mentioned you're on track to reach the 24k by mid-2023. Can you just remind us sort of, key milestones between now and then? And if there's a capital left to be spent, details on those lines?

Yes, so we're looking at about a $30 million to $40 million of capital in that program to get from 21 to 24. And it's a lot of incremental debottlenecking. We're looking at additions to the screening capacity on the downstream side of the SAG mill itself. There's a fair amount of work in the leach train with launders and interstage screens, the addition of tanks, so it's a lot of incremental little debottlenecking type work. And as you said, we're ramping up to 24 in the plan in the middle of '23.

Got it. Perfect. That's it for me. Thanks so much.

Thank you.

Your next question comes from the line of Fahad Tariq with Credit Suisse.

Hi, good morning. Thanks for taking my questions. Maybe first on 2022 cash costs. You mentioned that on the inflation side, maybe 5% to 7%, but then maybe some offsets on -- from the higher productions? I'm just trying to get a sense of how should we be thinking about next year's costs relative to the $830 an ounce cash cost guidance for this year. Thanks.

Thanks. We -- we would just remind -- we have -- we're still in our budgeting cycle. We do provide our cost guidance explicitly when we get into mid-February when reporting the year-end. But it is a numerator-denominator effect with higher production. We do expect the cost to go down, but Andrea do you want to just maybe make a comment there?

Sure. We did -- I guess going back, we did telegraph that next year costs will be coming down. That sort of the tailwind, the headwind is obviously inflation. I think we still do expect that costs for 2022 will be lower than 2021, but just not as low as we previously expected. And as Paul said coming from the growth in production and that growth coming, mostly for Tasiast and La Coipa which are lower-cost operation.

And I would just remind we do for revenue assumptions, use $1,500. Obviously, we're trying to -- that's below where we've been recently with spot, but it's closer in terms of anticipating taxes and royalties.

Okay, great. And then maybe just switching gears, on Paracatu, there was some commentary in the MD&A about temporary grade variability. Can you just talk a little bit about what happened there in the quarter? Because your grades were quite a bit lower than I was expecting at least, and maybe how to think about Q4? Thanks.

Yeah, Paracatu if you look at the long run, and I'm talking over the years, depending on where we are in the mine sequence, certain parts of the pit behave better than others. And in this past quarter, we were mining at edges of the pit, which historically are more difficult to predict -- predict the grade. As we head into the last quarter particularly next year, we're going get into the more reliable point for grade scenario. So, it's a temporary effect which is not out of line with what we've seen over long run performance on grade at Paracatu.

Okay, great. That's it from me. Thanks.

Your next question comes from the line of Anita Soni, with CIBC World Markets.

Good morning. Thanks for taking my call. I just have a question with respect to the mining rates at Tasiast, can you give us an update on how you're doing on the stripping? I think you'd mentioned previously that you'd have to catch up on that in order to get the grades for 2022.

Yeah. Thanks, Anita. So, we still expect to hit the grades for next year, most importantly. We have had challenges in the mining grade. We accumulated probably 35 million tons short fall of the last 2 years. You all remember the story. It was more acute last year due to COVID restrictions and the quarantines. So, we fell about 27, 28 million tons behind last year. This year, we struggled to ramp up to the full run rate, but it's not as bad as it was last year. We've lost about 6 or 7 million tons this year. However, those are both within the buffer we have on access to the higher-grade material on West Branch 4. So, by the end of this year, we will be stockpiling higher grades and we don't anticipate an impact to next year's production. We will be in line with the technical report to potentially slightly beating it.

Okay. And then in terms of Round Mountain, could you remind me what the cost -- so I guess the costs that were excluded this quarter were a little higher than I was expecting. So, could you remind me, where are we on that -- the ultimate number that you thought that you were going to exclude for this year out of your cost and how much more is there to go in Q4. And also remind me of the treatment of its next year, still a bit a lot of stuff flying out of this quarter.

Anita, I'll describe the physical situation and Andrea will talk about the cost treatment. So, we successfully -- so we've completed a lot of Geotech work which includes installation of de-watering wells, some pretty detailed analysis on modeling the pit walls. And we've come up with a pretty confident number where we're in line of pit wall, so we've been able to speed them a little bit from the last time we talked. We have moved that waste dump that was on the wall that needs to be laid back and we're now mining waste down below that as we saw from the slopes. And our total estimate for net mining over and above what had been anticipated still in that 50 to 60-million-ton range. And we’re working on that plan. [Indiscernible] cost treatment, Andrea?

Anita, we did, you'll see I think about $43 million of costs related to Round Mountain net worth or adjusted [out of] (ph) normal cost. There is not -- a little bit more coming in Q4, but I think we guided around $50 million for that, and we'll be within that number.

Okay. Thank you for taking my questions.

And your next question comes from the line of Carey MacRury with Canaccord.

Hey, good morning, everyone. Just a question of 2022, just given all the moving parts in 2021, can you just remind us where the growth is coming from in 2022 outside, obviously, Tasiast.

So Tasiast revving up to that 6 to 650 range, as I said, in line with the TR, that's a big one and we're still targeting about 200 from La Coipa next year. And that's obviously production where there wasn't production before those are the two key components. But we're also seeing a nice number of Fort Knox and a 300-plus range. So those are the principal contributors. Tasiast, [Indiscernible] buying a little bit of Fort Knox.

And the timing [Indiscernible] again.

Mid-year. We are -- the projects going really well. We're ahead of -- plan on stripping. Mill refurbishment is going well and happy to say that our capital cost there has been trending under our budget. So, we're in good shape, but La Coipa and I would be targeting midyear on first production. As I said, around 200± next year.

And then maybe just on Tasiast, you mentioned the exit rate of about 18,000 tons a day, where is the mill currently at?

We've been achieving 80 % to 90 % of what we like, we just need to get that on sustain basis. And the target is to exit the year, that '18 and '19. But we've been doing say, '14, '15 and '16 as we get the mill back up and running. One of the reasons is that the refurbishment costs less than initially anticipated that the mill ended up being in better condition than we had initially feared. And that of course translates into good operating performance as we're back up and running.

Great. Thanks.

Your next question comes from the line of Mike Parkin with National Bank Financial.

Thanks guys are taking my question. And congrats on a good quarter, and looking forward to 2022. Just a couple of questions from me, most have been answered. with [Indiscernible] to I know costs have been a bit elevated for power because of the water situation there and sources. Can you just give us an update on where that kind of stands now?

Yes. In Brazil, we do own power plants which generate -- which serve most of our needs. However, there's a market stabilization mechanism in Paracatu that even when you own your own power, you contribute to the overall grid, so you do take a hit when there's drought. What's happening in Brazil is there's been broad drought condition that have led to shortages in hydroelectric power. In fact, it's the worst years since the 1930s. And so, as a result of that, we're paying higher power costs and that we expect that to continue in the near-term. But the important point here is that, our power costs would have been much higher if it weren't for the fact that we own these hydro dams. We are really happy that we have these. And I should also add that this drought, which is impacting hydroelectricity across the country is not impacting us in Minas Gerais where the state water balances remain healthy.

Okay, that’s great. And then what you didn't -- the exploration potential, you indicated in the past as quite interest and compelling this high-grade structure points to the pit. Can you just give us an idea in where you are in terms of following up on potential stepping out of the pit shell in second for continuation of that trend? And when we can expect kind of color and update on that program?

Yeah. So, we've -- the focus as you knows, over the last year has been on the infill program and we're really happy to report that the resource is in good shape. We've begun over the last few months, the first fuel season. And what we're doing is we're looking at targets along, strike on the children, on fault there, as well as depth extensions, principally, Northeast and Southwest. So, what I would guide you to towards is with our exploration updates that we typically do in February, you'll be seeing a little bit more detail on the results of these programs that are really focused on the areas outside that principle, Udinsk reserve.

Okay That was great. Thanks very much guys.

Your next question comes from the line of Greg Barnes with TD Securities.

Thank you. You seem to be hedging a little bit on Lobo. Is it the lower return, is it the permitting issues or just perhaps you are hopeful of another project steps into the pipeline ahead of it? That’s why a little bit cautious around that one.

Well, I think, I mean the key point there as the results of being reaffirmed, we -- what we expected is exactly how the study came out. I think -- I don't know that we are hedging our bets we're really just again, looking at this as a linear transition from La Coipa over to Lobo. We do -- we do have in front of us a lengthy permitting process. We just want to take the time to make sure we do the very best we can now, but we're not in a rush to try to get global up and running. In fact, there's a reasonable chance we continue to extend La Coipa and Lobo may get pushed out perhaps a year or 2. And Greg, the bet hedging that you're talking about really relates to -- let me just compare Udinsk and Lobo-Marte, in the case of Udinsk a lot of permitting work can be done concurrently to engineering. And we anticipate having those permits in hand when we make a construction decision. In fact, at Udinsk, we're even looking at potentially doing some early work on capital investment next year. In the case of Lobo-Marte, we had to get the engineering to quite an advanced level in order to even begin the permitting process. Whereas at Udinsk get the parallel, process at Lobo-Marte, it's very much a serial process where we have to have advance the engineering and then we go into a very involved EIA process which will take 2 years followed by sectorial permits. It's -- the bet hedging is really about the complexity in the very long time period to get projects over the line on the permitting side in Chile.

What about the water issues in the area? And I believe there's some hope you could connect La Coipa and Lobo on that trunk. I know you've had issues with water in Chile, historically.

Well, I think water is a sensitive topic in Chile and Region 3, and the Atacama. It's -- but again, I would remind that we have primitive wells that are pumping water, ready to go at -- they are pumping today at La Coipa. And part of our strategy here -- we've shown it in a couple of maps in different slides. Interestingly, the water wells are physically located closer to Lobo than they are to La Coipa. So, part of our strategy here is to look at pumping water in the other direction. The water we have dedicated to currently to La Coipa, turning around and pumping at the other direction to Lobo, which is closer.

All right. So, you're not concerned in that fund necessarily. You don't see that as a potential hurdle in diplomacy.

Like I think, permitting is always -- it's very important. It's something we take very seriously. And particularly in region through, we understood -- we know water is a sensitive topic.

Greg, water is foremost on our list of things to look at through this [Indiscernible] process. Can I ask, we look at our Chilean assets with long-term view. We have a big resource still on the books with Maricunga, we have a very large reserve here at Lobo-Marte. And we see increasing potential of La Coipa. All of these are subject to difficult permian environment. But if there is one, we've started to look at what does a bigger strategy potentially looks like for Chile, there are commercial options, for example, on desalination, would we ever take the lead on desolation project if we had larger inventories, these are all conceptual things we're looking at right now in addition to the straight-line permit on water use from the La Coipa well. In this case, the La Coipa well situation, overall, also looking at conceptual other studies for options that may serve not only Lobo, but also some of our other assets and potentially even further off field. So there, there's a parallel track.

Okay, gotcha.

That's great. Thank you.

Your next question comes from the line of Tanya Jakusconek with Scotia Bank.

Great. Good morning, everyone. Thank you for taking my questions. Just wanted to come back with Baltimore, I just phoned them -- just back to Tasiast and La Coipa. Can you remind me just some on the stockpile at Tasiast, what are we going to have by year-end and what rate, just so that we know what sort of buffer we have?

Yes, we're targeting 60,000 ounces to 70,000 ounce in stockpile at 2.5.

Okay. Thank you for that. And then, when you were down with the mill, is there any buffer time that you've gained timewise for thinking in some of your other portions of the mill that if we have a bit of a buffer. Have you gained any time on that to get to 24?

As you know, Tanya, this is something we've been talking about. We continue to look at those opportunities. We haven't moved off from mid - '23 timeline. The priority right now has been the 21K and the rebuild of the SAG mill. Our engineering teams continue to look for those opportunities, but we're not yet ready to move off that mid - '23 date.

I appreciate that. I just wanted to understand if there was a bit of a buffer right now.

If we had a buffer in the system, it was on the ramp up timing to '21. So, you might ask, we've moved our timing on '21 Q1 up to the end of Q1, we haven't adjusted our numbers, we probably had a little bit of a buffer there.

Okay. And then maybe just -- thank you. Maybe just coming back to La Coipa. Just reading -- just listening to what you're finding there, and then that continued into my reserve and resource question. It appears that Paul had mentioned that maybe we are able to gain another 1 or 2 years of additional mine life fit for pushing out Lobo-Marte at that amount of time, is there anything else that you're finding in the region that would make you think it would be beyond 1 or 2 years?

Yes, definitely. We are -- there's 4 or 5 deposits or phases of deposits that we're looking at bringing to the final over and above what's in the current plan. The first step is a joint venture agreement with Codelco. And that's a multi-phased deposit and we've got to an agreement with Codelco in the first phase of that. It's not a 100 % inked, but we anticipate having agreement with them signed in the upcoming months that would add one to two years to it. And then beyond there, there's a second phase of that deposit, it's called Perrin It would have again, a multier potential beyond that. And then also on our books are 2 other little satellite pits called Canaccord La Coipa, which would again year. So, if all our dreams came true at La Coipa, we could see a path to production out to 27 even 28, which would add several years. Talking 4 or 5 years of the initial La Coipa mine life estimate. And as Paul said, it would push out Lobo-Marte. And we would actually want that, that would be a good outcome. These are low capital expansions at La Coipa. These are pretty high-quality pits and to the extent that we're able to push out a little Lobo-Marte. La Coipa, we would welcome that as an outcome.

So, all the size of line and we would see Lobo-Marte and until -- maybe after 2028.

Definitely, if that were -- that would be a good outcome for us, and we're working towards that. And what we're going to do in our messaging is as we bring these satellite pits into the La Coipa plan, we will announce those as we come up. So, one of the things that will drive slightly higher capital for us next year is we're going to be doing some stripping work at Perrin, which is that Dako JV Deposit.

And staying on to the reserve and resources, just wanted to see how year-end 2021 is shaping up, excluding the addition that you had in Russia to reserve, I just want to talk about the mine sites. How do you feel about reserve replacement, for one? How do we feel about the resource category? And just confirming that you're not changing cutoff grades and/or you’re pricing for your reserve and resources.

Yeah. You took my freebie away from me there on Udinsk so that was --

You can't get that one Paul.

We're working on other potential add. As I mentioned in my prepared remarks, we're working on a phases study at Round Moun. It'll be close as to whether we get that into our year-end. That's a pretty big inventory there. That's going to be between $600 and a million ounces. We also just added 300 at Lobo-Marte. I know you're probably not give me credit for that. And then we're going to have a little dribs and drabs at the other mine sites. We are still using 1,200 for our reserve optimization number. And we don't have any plans to move off that with this year-end.

Okay.

I think we're probably not going to have a replacement if you don't give us credit for Udinsk and Lobo-Marte, which together $3.3 million of reserves. We're likely not going to have a full offset in the rest of the portfolio.

Okay. That's fair enough. And then my last question is for Andrea. I just wanted to come back to that Slide 9, where you talked about these inflationary pressures. And thank you for that slide. Just trying to understand, if we were to assume that the first half of 2021, we didn't see inflationary pressures. Would it be safe to assume, and again, all things being equal, that that 5 % increase would be -- if we were to benchmark it on maybe dollar per ton on the first

half of your cost of 2021. I am just trying to see directionally what I should put the 5 % and 10 % on. Like I need a base. Like it's not all the great 2021 because you've got some inflation for the second half and there would fetch marking it to first half of 2021 on a dollar per ton be corrector. How should I think about that?

Maybe we want to come back to you on that one, Tanya. We can drill into it in a little bit more detail with some more numbers in front of us.

Okay and I appreciate that on the capital side too. Thank you.

I think --

On the capital side, you can -- we had last year given the $800 million for capex for 2022. So that's kind of where you can apply the inflationary estimates that we've given. You can start with that $800 million. And then on top of that, we may have some other increases. That $800 million number was based on projects approved at the time and a little bit for Udinsk on top of that, so there's other things that are coming -- that will come into to capex on top of that -- in addition to.

Right, to the extent it's not inflation-related, it's decisions where we've decided to think about reinvesting into our business.

Okay. So, 10 % on the 800 plus other approved projects?

That's right. You picked over the inflation note, obviously on commentary on us and other companies. It's still there and in some cases, still increasing. So, it's not like inflation hit, things got to a new level and stabilized in some e-commodities, we continue to see price increases.

Okay. Just trying to make a stab at what we think we could see in 2022 from some stabilized level and appreciate that it is moving through the moving target. I'll wait for some more on that. Thank you.

Thanks.

Once again [Operator Instructions] Your next question comes from the line of Matthew Murphy with Barclays.

Hi, I'm going to have some of the capex. Look, what do you think the chances are that capex is flat up as opposed to declining? I know you had thought our economy, your loss gardens of the sustaining levels to sort of sustain production long-term. And so, you tack on inflation and we're still on a pretty healthy gold price environment. I'm just wondering directionally how we should think about it.

I think we just covered it a little bit, Matthew. It's -- I think we're guiding up both from an inflation and from a new project investment perspective. We expect -- I think we've -- in the past we view some directional sort of rule of thumbs. We've -- we've said it'll get you into the right zone if you're thinking about Anita in terms of saying $300 bucks an ounce. If your inflation effect that, you'd adjust that to sort of 330 per ounce. But I -- directionally, up.

Yes. Okay. Thank you.

Your next question comes from the line of Anita Soni with CIBC World Markets.

Hi. Just to follow up on that other expense line item. The -- I'm -- just I'm trying to get some color on what would be included in that for next year. would there be any more -- I mean, I assume is done and then round that -- would there be any comps there's still?

I mean it's difficult to predict just by the nature of other operating costs. But yes, I mean, obviously we had some bigger ticket items that were specific to this year. So, don't really expect any more of those 2 items going forward.

And COVID costs, which were part of it historically are coming down.

Yeah, I mean, COVID costs for the quarter was about $5 million and they have been trending down from last year throughout this year. As far as we're seen, we expect them to continue to go down, but well something will continue to watch as well.

Okay. Thank you.

And at this time, there are no further questions. Are there any closing remarks?

No. Thank you all for joining us today. We look forward to catching up with you in the coming weeks and months. Thanks, everyone. Thank you, Operator.

You're welcome. This concludes today's conference. You may now disconnect.